2022 Industry Year in Review

OOverall, the manufactured housing industry has had a good year in 2022. The level of new home production was up again and has plenty of room to climb. To say the industry, any industry, had good growth in 2022 is remarkable, as we will detail further in the sections to come. Many employers have managed, somewhat surprisingly, to dodge and weave through the travails of the pandemic — lockdowns, illness, added health and safety regulations — and the labor market continues to rise from a slumber partially induced by obtuse government funding to would-be workers. Though hiring and training was a challenge in 2019 and continues to be, the labor market has righted itself enough to both buoy a tenuous economy and provide some amount of confidence for employers, especially in the manufactured housing industry, to be assertive and hire strategically for the long term. That said, 2022 was a year that had its challenges.

We will detail them from a general perspective, and provide some insight into how each challenge affected the manufactured housing industry specifically.

Inflation: From ‘Transitory’ to Entrenched

The hopeful talk of a “soft landing” died a quick death in the late summer. Year over year inflation rose above 9 percent mid-year and receded very mildly in August. Most analysts feel outsized inflation — pretty much anything more than 2 percent — will persist into the new year and 2024, though there is a minority pointing to the similarity of today’s trajectory with 1970s peak inflation, with the added benefits of the Fed’s recent »

historic measures to stave off inflation by raising rates, and cooling its activity in the bond market.

Admittedly, the reduction in late summer energy prices, including gasoline, helped level out inflation as fall was to settle in, before ticking up again on OPEC policy. Furthermore, critics are quick to point to the continued rise of core inflation as both the problem and the indicator of any significant progress. In the same month inflation dropped 0.10 percent, energy, food, and shelter increased by 0.2 percent and core inflationary (those excluding energy and food) marks rose 0.6 percent.

While we can acknowledge the benefits of lower energy and food prices, the “entrenched” nature of inflation today continues to keep many households up at night.

Economist KC Conway, in his presentation at the SECO Conference for Community Owners in October, noted that inflation pressure is difficult at home, and particularly daunting in the workplace.

“New construction is in a difficult spot with the anticipated cost overruns — maybe more than 32 percent in the next two years,” Conway said. “How do you plan a project and get a good loan with overruns?”

Interest Rates: The Levers that Manage Consumer Spending

What happens when the cost of goods shoot up as quickly as they did in 2022? Coming off a roaring economy in 2021, and again, overfed by government spiffs, there was a glut of money in the system, and a rabid consumer appetite despite the seemingly “transitory” supply chain disruptions that created scarcity and drove up prices. Yes, the U.S. economy was bound to see some level of inflationary pressure, and when it does the Federal Reserve steps in to raise interest rates. The expectation is that gradual rate hikes that make it harder to access money, for a home or capital upgrades for instance, would slow spending, cool the economy, and flatten inflation without dropping the economy into a recession. Easier said than done. Where the Fed usually steps in, the Fed in 2022 probably should have dove head first. It’s easy to see now, and the Fed’s subsequent actions — raising

rates to the tune of 75 basis points at three consecutive meetings for the first time ever — have shown its own careful approach of early-year hikes at 25 or 50 basis points could have used more weight.

Increased interest rates across all sectors means less profit and reduced investment. While the manufactured housing industry has been noted as being “recession proof”, there is only so much pain property owners and investors want to feel. The industry is motivated by providing houses, increasing homeownership, and that certainly is a more difficult proposition when our homebuyers who require financing find it harder and more expensive yet.

Conway said he anticipates a 4.5 to 5 percent 10-year treasury rate by mid 2024, and a 30-year mortgage at 8 percent.

He was critical of the Fed, saying the late, aggressive rate hikes is a blunt instrument for a problem that could have been better handled by sharpening a pencil and managing expenses, as he advised manufactured housing industry operators to do.

“The Fed should be encouraging the banks to lend,” Conway said. “But they’re discouraging lending.”

Lending

We just covered increased interest rates, so the next obvious topic is finance and lending. Every home or community transaction gets more expensive under the specter of increased rates. The obvious bit of relief here is that the increased interest rates induced by the Federal Reserve have an equal impact on everyone. The price of buying any home in any neighborhood increased on scale, so the manufactured home continues to meet the same market need and can expect a somewhat similar market performance. The real story when it comes to lending for manufactured housing has less to do with increased rates than it does with general acceptance and availability of financing for manufactured homes, including a more robust secondary market where chattel loans are regarding in the same light at the conventional mortgage. Fannie Mae and Freddie Mac, for instance, have helped the industry with plenty of secured financing for communities — commercial real estate transactions — but have yet to embrace securitization for homes as personal property. Labor

The labor market is a two -sided coin. As mentioned earlier, it is strong enough to help buoy the economy against recession, gaining 263,000 non-farm payroll jobs in September, but remains vexing to employers who need to hire efficiently, effectively, and with confidence the plan will retain and grow talent.

So how is the labor market both good and bad? Well, in the fourth quarter, the labor market could be described as well balanced if not robust. Unemployment dipped to a satisfactory 3.5 percent. The difficulty is that the participation has been low and remains so. That is to say, there is a job for nearly everyone who wants a job, but there are still too many people who don’t want a job. That’s a cocktail of matters. Firstly, the middle of the labor force remains in a pandemic hangover. Younger workers and lower earners have had more cash on hand than ever, and even though most benefits have ended, some of the reserves remain. There are fewer retail, hospitality, and restaurant jobs both because there are fewer businesses in those sectors, and because fewer workers are interested in those positions.

“The restaurant, hospitality, and retail workforce said we’re done,” Conway noted. “They’re going to get one of those remote jobs. If I were you, I’d think about building in home offices and getting s ome really good internet.”

Materials

The ability to reliably order materials at a reasonable cost for manufacturing or otherwise has been on shaky ground since the onset of the pandemic. There has been some softening with borders re-opening and trade regulating, but sourcing lumber, chips for electronics, windows, and all variety of tapes and plastics continues to be impossible at times and often costly and time-consuming. Unfortunately, any relief from supply chain solutions is being eroded by inflation throughout the economy.

Consolidation

The top operators in the business — whether in communities, homebuilding, or the service/supply sector — continue to be aggressive in growth through acquisition. In each edition of MHInsider, »

in The Happenings section, we detail a lengthy list of transactions, individual communities or small portfolios being acquired by the larger, national operators. Likewise, builders continue to fill out their offerings or shore up their presence by buying existing companies, most often continuing under the proven brand and market approach. While we’ve seen the headlines of million-dollar deals, there is plenty more opportunity for consolidation. The “industry is aging” is a conversation that often arises. Attention is being paid, and efforts are being made to ensure that vital resources — like haulers and set teams — continue in the marketplace under new leadership and ownership as necessary. For every seller there is the right buyer.

Expansion

The industry is expanding in every way. Builders are opening plants that haven’t seen homebuilding activity in decades, organizations throughout manufactured housing are investing in their teams, and community operators are following through on thoughtfully planning how new homes will be brought in on that adjacent land. Lenders are coming back to the industry as well, offering a variety of new programs and products for homebuyers and community operators. The ADU business is expanding as new states and municipalities on an increasingly regular basis are allowing the backyard or adjacent “cottages”. New HUD Code homes on a permanent foundation with a garage or porch, higher roof pitch, and interior energy and efficiency requirements now qualify for conventional mortgages. The CrossMod homes in a neighborhood setting are an emerging solution for many developers and buyers looking to the middle market. As manufactured housing professionals, the real measure of expansion we all want to see is in the percentage of national home starts, where we’ve been hovering around 10 percent and need to grow toward 15 to 20 percent. The opportunity for continued growth exists, and it is our responsibility to make it happen. MHV

Kevin Law, business development manager for Palm Harbor of Florida, readies a truck of supplies the Cavco team gathered for storm relief on the gulf coast. Photo courtesy of Palm Harbor.

HHurricane Ian leveled the Florida Gulf Coast with wind, rain, and storm surge that devastated many of the state’s residents, including those in manufactured home communities, before moving off coast and back toward

South Carolina. Meteorologists said Ian was among the five strongest storms ever to make landfall in the U.S. and was Florida’s most destructive storm since 1935. Estimates are that the storm surge was as high as 15 feet when it made landfall in Fort Myers, the high winds and downpour pushing into North

Port, and Port Charlotte. The loss of life at the time of printing was approaching 150 people. Early modeling showed that about 800,000 homes through the storm’s path were exposed to hurricane-force winds. The property loss will take months if not years to determine, but early estimates have damage coming in between $80 and $100 billion. The Florida Manufactured

Housing Association put out numerous emails to its members in advance of and following the storm to provide information and resources for those in need, including access to a new catch-

all website for storm relief found at floridastormrelief.fl.gov.

HazardCall Helps Floridians Avoid Storm, Find Help

HazardCall, which provides precise communication services during emergency and crisis situations, said it made calls and sent information on storm watches and warnings, as well as evacuation, return and recovery resources, to more than 2,300 residents and employees of community clients through the duration of the storm.

“We have a client in Sarasota that was notified at the same time who was very proactive and was able to communicate to the residents an evacuation plan, which was off-site because the clubhouse there wasn’t rated for the storm,” Gene Norman, a meteorologist and a vice president at HazardCall, said. “Most importantly, the management and residents were all able to get a message about when it was safe to come back to these communities.”

HazardCall was serving a dozen clients with properties in Sarasota, Bradenton, Ocala, Jacksonville, and Savannah, Ga.

“In a large emergency situation you need to get in touch with a large number of people quickly at the same time,” Norman said. “We heard from one manager who said ‘We really couldn’t have done this any other way.’”

Sun Communities Continues Cleanup

Sun Communities, the Michigan-based real estate investment trust, reported in the days immediately following the storm that it had teams in the area assisting with cleanup and restoration, going to its communities and marinas with trucks and travel trailers filled with supplies and food.

Sun stated that three of its RV properties in the Fort Myers area, with a total of 2,500 sites, sustained significant flooding and wind damage. The sea wall and docks at one marina were damaged, and a manufactured home/ RV community had damage primarily to trees, roofs, fences, skirting, and carports. At other Sun marina properties, docks, buildings, and landscaping sustained limited wind and water damage.

“Our thoughts and support go out to all those impacted by Hurricane Ian. Nothing matters more than the safety of our residents, guests, and team members,” Sun Executive Vice President of Operations and Sales Bruce Thelen said.

Equity LifeStyle Properties Reports on Coastal Communities

Equity LifeStyle Properties, headquartered in Chicago, continues to assess the impact of Hurricane Ian on its Florida, North Carolina, and South Carolina coastal properties. Initial assessments in Florida showed limited wind-related structural damage to common areas. The properties have been affected by flooding, wind, blown debris, falling trees, and falling tree branches.

Electric power, water, and wastewater disruptions led ELS to temporarily close RV parks Cape Haze, which had significant flooding and wind damage, as well as Gulf Air RV and Fort Myers Beach RV, which have 246 and 292 sites, respectively, and Palm Harbour Marina with 260 slips.

“Consistent with prior storm events, newer homes appear to have held up well during the hurricane,” the company said in a released statement. “However, we have seen damage to some homes, carports, screened rooms, and awnings.

“Cleanup efforts have begun in many of the communities, and we are working towards quickly returning our properties to full operating condition,” it said. “We are in the process of estimating costs associated with our cleanup and restoration efforts, and the company believes that it has adequate insurance, subject to deductibles, including business interruption coverage.”

The company for a time was unable to access a pair of other RV and marina properties, Pine Island RV in St. James City and Fish Tale Marina in Fort Myers Beach, Florida, with more than 600 combined slips.

“Our highest priority is the safety of our residents, guests, and employees,” ELS President and Chief Executive Officer Marguerite Nader said.

New Jersey-based REIT Reports on Community from Florida Partnership

UMH Properties said the Sebring, Fla., manufactured home community it owns in partnership »

with Nuveen Real Estate endured 75-mile-per-hour wind and more than 10 inches of rain with limited damage.

“Fortunately, none of our residents or employees were injured,” UMH President and CEO Sam Landy said. “Several of our homes had minor roof and skirting damage, four sheds were destroyed, and a few palm trees were uprooted.”

The limited damage to the community’s homes demonstrates the quality and durability of new manufactured homes, Landy said.

“While our damage was minimal, others were not as fortunate and faced significant damage. We have homes available and are working to provide housing to those who have been displaced,” he said. “UMH will accelerate, if possible, the development of new homes in Florida to address this urgent housing need.”

SECO Provides Funding, Resources to Hard-Hit Areas

The co-founder of SECO Conference for Community Owners Spencer Roane said during an address at the recent gathering near Atlanta that the non-profit organization was accepting donations to aid Florida residents, and would send $25,000 of its own to help.

“No amount is too small, $10, $20, $40… I know many of you can afford much, much more, and I’m sure with our combined efforts we will be able to make a significant difference during a time that it’s most needed,” he said.

Cavco Gathers Cash, Water, Daily Necessities for Storm Victims

Mike Draper and Mark Kelly from Palm Harbor Homes of Florida gathered a team to get resources to residents in some of the state’s most devastated areas.

“We put out a request for support from each of the Cavco plants, and we’re talking 27 locations,” Kelly said. “Virtually every entity throughout the organization responded, not just the plants, and gave much more than requested.”

The group ended up raising $27,000 and sending employees to area hardware and home good stores to buy supplies.

“We went to about 12 different communities throughout Punta Gorda, Fort Myers, and Port Charlotte,” Kelly said. “We’d show up in the morning and distribute to residents of the communities in the affected areas, or we’d just set out the supplies at its clubhouse for distribution later… We just try to do our part with a lot of help from a lot of the Cavco team.”

They delivered home care goods, paper goods, and snacks.

“We delivered 6,000 bottles of water, 750 gallons of gas, 1,100 batteries,” Kelly said.

Broker/Lender Delivers $5k in Cash, Supplies

James Cook of Yale Realty and Capital Advisers posted a video tour of some of the hard-hit areas on social media following the Hurricane.

“We visited many communities bringing everything from diapers and wipes, to canned foods, Neosporin, gloves, and band-aids,” he said. “I took a couple of these videos but it’s an amazing example of how good our Hurricane Andrew standard wind Zone 3 homes hold up.” MHV

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